BUILDERS FIRSTSOURCE INC (NYSE:BLDR) – A Quality Stock Worth Considering

BUILDERS FIRSTSOURCE INC (NYSE:BLDR) was identified by our Caviar Cruise screen as a potential candidate for quality investors. The company, a leading supplier of building materials and services, demonstrates strong profitability, efficient capital allocation, and solid financial health. Below, we examine why BLDR fits the criteria for a quality investment.

Key Strengths

• High Return on Invested Capital (ROIC): BLDR’s ROIC (excluding cash and goodwill) stands at 25.73%, well above our 15% threshold. This indicates the company generates strong returns from its capital investments.
• Strong EBIT Growth: Over the past five years, BLDR has achieved an annual EBIT growth rate of 32.41%, far exceeding the 5% minimum requirement. This suggests improving operational efficiency and pricing power.
• Healthy Debt Management: The company’s debt-to-free cash flow ratio is 3.44, meaning it could repay its debt in under 3.5 years using current cash flows—a sign of manageable leverage.
• Profit Quality: BLDR’s five-year average profit quality (free cash flow to net income) is 102.16%, indicating that earnings are consistently converted into cash.

Fundamental Analysis Summary

Our fundamental report assigns BLDR an overall rating of 5 out of 10, reflecting mixed but promising metrics:

• Profitability (7/10): Strong ROIC and ROE, though operating margins are below industry peers.
• Financial Health (5/10): Manageable debt levels, but a high debt-to-equity ratio warrants caution.
• Valuation (6/10): Priced reasonably relative to earnings and cash flow, trading below many industry peers.
• Growth (4/10): Past revenue and EPS growth have been strong, but near-term expectations are modest.

For investors seeking quality companies with efficient capital deployment and solid cash generation, BLDR presents an interesting opportunity.

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Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should always conduct your own analysis before making investment decisions.